Question

1. Would you expect firms in different industries to have the same level of debt in their optimal capital structure range – why or why not?

Answer 1

No, because the Capital structure is the mix of long-term debt and, on which interest and principal payments must be made, and equity, in the form of common and preferred stock, which the firm uses to finance operations. The capital structure affects both the risk and returns of the firm and is directly related to leverage. capital structure is different among different industries because many industries have high capital than others

In financing, the financing mix is not meant to maximize firm value as measured by the company's common stock price multiplied by the number of common stock shares outstanding. Instead, it should minimize the firm's weighted average cost of capital(WACC).

A company can recognize capital structure by issuing additional debt, refinancing current debt at the lower interest rates, buying back already issued debt or stock, and issuing stock.